The Superiority and Disciplining Role of Independent Analysts
48 Pages Posted: 19 Jul 2007 Last revised: 15 May 2008
We show that although forecasts of independent analysts are less accurate ex post, they yield forecast errors that are more strongly associated with abnormal stock returns. This suggests that forecasts of independent analysts are superior to those of nonindependent analysts in representing ex ante market expectations. We also show that forecasts of nonindependent analysts become more accurate and less biased, and produce forecast errors more strongly associated with abnormal stock returns when independent analysts are following the same firms than when they are not. This suggests that the presence of independent analysts disciplines the behavior of nonindependent analysts.
Keywords: Financial analysts, analyst independence, forecast accuracy and bias, earnings response coefficients, Global Research Analyst Settlement
JEL Classification: G28, G29, M41, M43
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